Core Equity Analysis

Core Equity Analysis

Note

Data on this page was last updated on May 18, 2023

Expectations

Expectations are all about trying to identify future expectations of a particular asset.

Warning

A practitioner needs to confirm the expectations with a trend following model and risk management rules. It should not be viewed in a vacuum, and external forces should always be considered.

Long-term (CAPM) Expectations

Running the traditional CAPM model sets the framework for analyzing a multi-factor regression model. It also helps to understand the academic world’s perspective on the asset class. I would not put too much weight on these statistics unless you are a pension fund with very long-term investment horizons. Most of us are not and need to adjust our expectations for both the business cycle and economic factors.

Chart

Data Source: IEX Exchange

Annualized Returns

Annualized Performance Metrics (Rf = 2.00%)

	Return	Std Dev	Sharpe	Beta
Factor - Min Vol	11.7%	0.1416	0.6703	0.729
Style - Large Value	11.22%	0.1702	0.5303	0.878
Factor - Quality	11.52%	0.1789	0.5210	0.967
Factor - Momentum	11.92%	0.1951	0.4977	0.983
Factor - High Dividend	9.38%	0.1529	0.4721	0.723
Factor - Size	10.52%	0.1804	0.4619	0.922
Style - Large Growth	10.15%	0.2010	0.3967	0.988
Style - Large Blend	9.25%	0.1921	0.3693	0.970
Bechmark (Wilshire 5k)	8.29%	0.1807	0.3403	1.000
Factor - Value	8.58%	0.1917	0.3356	0.972
Factor - Dividend	8.7%	0.1998	0.3278	0.897
Style - Mid Core	9.04%	0.2190	0.3144	1.047
Style - Small Core	9.32%	0.2339	0.3061	1.071
Style - Mid Growth	8.92%	0.2322	0.2914	1.080
Style - Small Growth	8.69%	0.2352	0.2782	1.127
Style - Mid Value	8.1%	0.2229	0.2675	1.033
Style - Small Value	8.36%	0.2347	0.2650	1.114
Europe, Australia, Asia, Far East	6.34%	0.1701	0.2490	0.825
Index - S&P 500 Index	6.79%	0.1950	0.2402	0.968
Index - NASDAQ	8.73%	0.2770	0.2376	1.185
Emerging Markets	8.38%	0.2816	0.2214	1.200
Total International Stock ETF	5.15%	0.1682	0.1827	0.819
Sector - Real Estate	7.2%	0.2988	0.1699	1.175
Index - Russell 2k	5.63%	0.2545	0.1391	1.169
MSCI Pacific	4.29%	0.1656	0.1346	0.730
Developed Markets	2.8%	0.2256	0.0341	0.956

Business Cycle Expectations

The first step to estimating proper expectations is to understand the performance metrics filtered by our six business cycle stages. Core equities are sensitive to inflation expectations, growth, and credit risk; which often correlate to the business cycle.

Click to Show the performance tables by stage of the business cycle.

Recession

Annualized Performance in a Recession (Rf = 2.00%)

	Return	Std Dev	Sharpe
Factor - Momentum	-16.1%	0.5732	-0.3098
Emerging Markets	-17.17%	0.5481	-0.3432
Factor - Quality	-23.35%	0.5535	-0.4492
Style - Small Core	-13.87%	0.3285	-0.4741
Style - Mid Core	-13.94%	0.3237	-0.4833
Index - Russell 2k	-16.7%	0.3525	-0.5205
Index - NASDAQ	-20.81%	0.4186	-0.5347
Style - Large Growth	-19.2%	0.3566	-0.5833
Index - S&P 500 Index	-16.77%	0.3018	-0.6102
Bechmark (Wilshire 5k)	-17.72%	0.3033	-0.6379
Factor - Min Vol	-33.6%	0.5206	-0.6707
Factor - Size	-40.4%	0.6155	-0.6755
Style - Small Growth	-26.11%	0.4025	-0.6850
Style - Mid Growth	-26.43%	0.4048	-0.6888
Factor - High Dividend	-38.1%	0.5628	-0.6988
Sector - Real Estate	-41.88%	0.6128	-0.7022
Style - Large Blend	-24.72%	0.3670	-0.7142
Factor - Dividend	-27.8%	0.3897	-0.7499
MSCI Pacific	-34.47%	0.4475	-0.7993
Style - Large Value	-46.31%	0.5757	-0.8229
Factor - Value	-52.06%	0.6318	-0.8391
Style - Small Value	-35.64%	0.4334	-0.8518
Style - Mid Value	-35.05%	0.4064	-0.8940
Total International Stock ETF	-43.33%	0.4904	-0.9065
Developed Markets	-36.41%	0.4135	-0.9111
Europe, Australia, Asia, Far East	-44.89%	0.5000	-0.9196

Recovery

Annualized Performance in a Recovery (Rf = 2.00%)

	Return	Std Dev	Sharpe
Factor - Size	52.81%	0.1778	2.8013
Total International Stock ETF	42.4%	0.1611	2.4570
Factor - Quality	42.7%	0.1658	2.4051
Europe, Australia, Asia, Far East	40.37%	0.1661	2.2636
Style - Large Value	37.87%	0.1557	2.2579
Factor - Value	48%	0.2054	2.1949
MSCI Pacific	32.37%	0.1579	1.8843
Style - Mid Growth	42.45%	0.2231	1.7769
Factor - Min Vol	25.81%	0.1332	1.7508
Style - Mid Core	40.54%	0.2201	1.7153
Index - NASDAQ	37.03%	0.2108	1.6281
Style - Large Growth	33.58%	0.1922	1.6101
Style - Small Growth	41.76%	0.2433	1.6018
Emerging Markets	44.06%	0.2575	1.6009
Style - Mid Value	41.38%	0.2458	1.5703
Style - Small Core	42.19%	0.2517	1.5646
Index - S&P 500 Index	29.96%	0.1812	1.5115
Style - Large Blend	31.17%	0.1900	1.5043
Style - Small Value	43.19%	0.2703	1.4936
Index - Russell 2k	39.71%	0.2506	1.4743
Bechmark (Wilshire 5k)	30.41%	0.1891	1.4718
Factor - Momentum	34.93%	0.2264	1.4252
Factor - High Dividend	24.66%	0.1653	1.3429
Factor - Dividend	31.24%	0.2226	1.2867
Developed Markets	31.48%	0.2333	1.2380
Sector - Real Estate	42.94%	0.3756	1.0682

Early Exp

Annualized Performance in a Early Expansion (Rf = 2.00%)

	Return	Std Dev	Sharpe
Factor - Momentum	22.4%	0.1356	1.4734
Factor - Min Vol	16.69%	0.0992	1.4505
Factor - Quality	17.32%	0.1072	1.3994
Factor - Value	19.25%	0.1347	1.2547
Europe, Australia, Asia, Far East	17.89%	0.1292	1.2041
Factor - Size	16.85%	0.1213	1.1987
Factor - High Dividend	13.2%	0.1206	0.9093
Index - NASDAQ	16.93%	0.1779	0.8222
Total International Stock ETF	11.96%	0.1302	0.7491
Factor - Dividend	13.61%	0.1540	0.7381
Style - Large Blend	13.89%	0.1584	0.7346
Index - S&P 500 Index	13.79%	0.1580	0.7306
Style - Small Core	17.82%	0.2127	0.7282
Style - Small Value	16.51%	0.2034	0.6984
Style - Large Growth	13.55%	0.1646	0.6870
Sector - Real Estate	15.13%	0.2016	0.6376
Style - Mid Value	14%	0.1882	0.6242
Style - Large Value	12.15%	0.1658	0.5994
Style - Mid Core	13.78%	0.1929	0.5978
Bechmark (Wilshire 5k)	11.78%	0.1635	0.5854
Style - Mid Growth	12.27%	0.2068	0.4860
Style - Small Growth	12.2%	0.2161	0.4622
Index - Russell 2k	12.5%	0.2303	0.4463
Developed Markets	4.83%	0.2162	0.1277
Emerging Markets	0.24%	0.2355	-0.0738
MSCI Pacific	-1.57%	0.1268	-0.2768

Mid Exp

Annualized Performance in a Mid Expansion (Rf = 2.00%)

	Return	Std Dev	Sharpe
Factor - Min Vol	11.53%	0.1046	0.8915
Factor - Dividend	11.34%	0.1150	0.7950
Factor - Momentum	12.87%	0.1452	0.7328
Factor - Value	11.76%	0.1357	0.7042
Factor - High Dividend	9.76%	0.1100	0.6900
Index - NASDAQ	12.59%	0.1568	0.6608
Factor - Size	10.04%	0.1190	0.6608
Factor - Quality	10.49%	0.1274	0.6522
Style - Mid Value	10.47%	0.1325	0.6251
Style - Large Value	9.66%	0.1246	0.6013
Index - S&P 500 Index	9.73%	0.1269	0.5954
Style - Large Blend	9.52%	0.1296	0.5679
Style - Large Growth	9.04%	0.1370	0.5027
Style - Mid Core	8.27%	0.1401	0.4376
Bechmark (Wilshire 5k)	7.05%	0.1286	0.3840
Style - Small Value	7.67%	0.1447	0.3832
Style - Small Core	8.01%	0.1583	0.3712
Style - Mid Growth	6.32%	0.1454	0.2903
MSCI Pacific	5.66%	0.1435	0.2491
Sector - Real Estate	5.51%	0.1458	0.2352
Europe, Australia, Asia, Far East	5.09%	0.1422	0.2119
Developed Markets	4.87%	0.1419	0.1974
Total International Stock ETF	4.79%	0.1417	0.1920
Emerging Markets	4.42%	0.1872	0.1257
Style - Small Growth	3.95%	0.1574	0.1202
Index - Russell 2k	3.68%	0.1783	0.0916

Late Exp

Annualized Performance in a Late Expansion (Rf = 2.00%)

	Return	Std Dev	Sharpe
Factor - High Dividend	18.51%	0.1229	1.3152
Sector - Real Estate	22.46%	0.1568	1.2784
Factor - Min Vol	15.8%	0.1241	1.0886
Factor - Dividend	9.46%	0.1156	0.6310
Index - S&P 500 Index	8.93%	0.1428	0.4749
Style - Small Core	10.04%	0.1714	0.4589
Factor - Size	9.02%	0.1532	0.4483
Style - Mid Core	9.02%	0.1599	0.4295
Style - Small Growth	9.9%	0.1945	0.3973
Style - Mid Growth	10.35%	0.2102	0.3886
Style - Large Blend	7.44%	0.1404	0.3787
Style - Large Value	7.16%	0.1388	0.3634
Factor - Quality	8.06%	0.1711	0.3462
Style - Small Value	6.68%	0.1513	0.3024
Factor - Momentum	7.83%	0.2157	0.2644
Index - Russell 2k	6.12%	0.2088	0.1928
Style - Large Growth	5.3%	0.1719	0.1872
Bechmark (Wilshire 5k)	4.7%	0.1708	0.1541
Emerging Markets	5.04%	0.2375	0.1249
Index - NASDAQ	4.7%	0.3167	0.0830
Style - Mid Value	2.91%	0.1449	0.0603
Factor - Value	-3.49%	0.1645	-0.3281
MSCI Pacific	-5.8%	0.1441	-0.5320
Developed Markets	-7.48%	0.1520	-0.6122
Total International Stock ETF	-8.05%	0.1577	-0.6258
Europe, Australia, Asia, Far East	-8.23%	0.1554	-0.6468

Imminent Recession

Annualized Performance in a Imminent Recession (Rf = 2.00%)

	Return	Std Dev	Sharpe
Style - Large Blend	9.48%	0.1694	0.4322
Style - Large Growth	10.35%	0.2094	0.3903
Factor - Dividend	7.68%	0.1429	0.3883
Style - Mid Value	6.87%	0.1626	0.2924
Emerging Markets	7.66%	0.1997	0.2768
Style - Large Value	6.67%	0.1656	0.2756
Style - Mid Core	6.65%	0.1932	0.2353
Factor - Min Vol	5.19%	0.1425	0.2182
Style - Small Growth	6.44%	0.2222	0.1950
Style - Mid Growth	5.89%	0.2109	0.1800
Europe, Australia, Asia, Far East	4.65%	0.1681	0.1536
Index - S&P 500 Index	4.58%	0.1714	0.1466
Factor - Quality	4.96%	0.1973	0.1463
Style - Small Value	4.68%	0.1886	0.1382
Developed Markets	3.37%	0.1686	0.0785
Style - Small Core	2.44%	0.2039	0.0206
Sector - Real Estate	2.14%	0.1928	0.0064
MSCI Pacific	2.1%	0.1515	0.0057
Bechmark (Wilshire 5k)	1.51%	0.1779	-0.0281
Total International Stock ETF	1.4%	0.1637	-0.0372
Factor - Momentum	1.11%	0.1763	-0.0503
Factor - Size	0.06%	0.1944	-0.0988
Index - Russell 2k	-0.95%	0.2457	-0.1184
Index - NASDAQ	-1.99%	0.2843	-0.1380
Factor - Value	-1.19%	0.1911	-0.1643
Factor - High Dividend	-1.06%	0.1457	-0.2070

Note

The current stage of the business cycle is stage 6 which is a imminent recession.

**

Business Cycle Stage Best performers

	Return	Std Dev	Sharpe
Style - Large Growth	10.35%	0.2094	0.3903
Style - Large Blend	9.48%	0.1694	0.4322
Factor - Dividend	7.68%	0.1429	0.3883
Emerging Markets	7.66%	0.1997	0.2768
Style - Mid Value	6.87%	0.1626	0.2924

Annualized Metrics (Rf = 2.00%)

Important

Avoid the following equity classes:

	Return	Std Dev	Sharpe
Factor - Size	0.06%	0.1944	-0.0988
Index - Russell 2k	-0.95%	0.2457	-0.1184
Factor - High Dividend	-1.06%	0.1457	-0.2070
Factor - Value	-1.19%	0.1911	-0.1643
Index - NASDAQ	-1.99%	0.2843	-0.1380

Annualized Metrics (Rf = 2.00%)

Factor Expectations

By this point, you should know that economic factors play a vital role in estimating the future expectations of an asset. Each asset needs to be run through our machine learning regression model to assess what factors are essential and the future expectation for the help.

Current Factor Trends:

	Trend
Economic Growth (Gr)
Monetary Policy (Mp)
Credit - Investment Grade (Cr)
Credit - High Yield (Ch)
Inflation Expectations (Ie)
Real Rates (Rr)
Long-term Real Rates (Rl)
Currency (Cu)
Commodity (Cm)

Factor investing diversifies the beta (smart beta) between the asset and the factor instead of focusing on the beta between the security and a benchmark. One can estimate what they think the risk premia will be over time and control factor-beta, and use the long-term history for the presumed risk of the factors. That is unacceptable to us; using long-term data might be okay if you are a pension fund with a horizon of 100 years, but we investors have a much shorter investment horizon.

So what we do differently is identify the factor's current trend to calculate the risk premia and expected return of a particular asset. Furthermore, we do not rely on beta alone for sensitivity. Still, we run our regression through a machine-learning algorithm to more accurately model the factor's sensitivity. While our approach is not that academic, it is practical for real-world decision-making and does not require a long history to compute.

Factor Betas

Beta by Factor, (Rf = 2.00%)

	Gr	Mp	Cr	Ch	Ie	Rr	Rl	Cu	Cm
Benchmark (Wilshire 5k)	0.2452	0.0644	-0.1289	-0.0187	0.1057	0.0266	0.0499	-0.0025	0.0011
iShares:Core S&P 500	0.2333	0.0613	-0.1263	-0.0179	0.1014	0.0258	0.0484	-0.0025	0.0011
Factor - Value	0.3658	0.0423	-0.1953	-0.0427	0.1315	0.0063	0.035	-0.0024	0.0017
Factor - Dividend	0.2322	0.0534	-0.1169	-0.0209	0.0978	0.0294	0.0493	-0.0046	0.001
Factor - High Dividend	0.2778	0.022	-0.1524	-0.0308	0.0951	0.0036	0.0327	-0.0035	0.0014
Factor - Quality	0.3434	0.0218	-0.1669	-0.037	0.1032	-0.0024	0.0222	-0.0026	0.0013
Index - Russell 2k	0.2912	0.0745	-0.1395	-0.0226	0.1233	0.0288	0.056	-0.0028	0.0013
Index - NASDAQ	0.2502	0.0729	-0.1194	-0.019	0.0952	0.0279	0.0502	-0.0011	0.0009
Style - Large Value	0.3513	0.0369	-0.1878	-0.0398	0.1231	0.0134	0.0477	-0.0046	0.0017
Style - Large Blend	0.2613	0.057	-0.135	-0.023	0.1058	0.0249	0.0452	-0.0051	0.0012
Style - Large Growth	0.265	0.0528	-0.1312	-0.0227	0.1019	0.0204	0.0395	-0.0052	0.0012
Style - Mid Value	0.2962	0.0724	-0.1581	-0.0265	0.1314	0.0299	0.0546	-0.0066	0.0016
Style - Mid Core	0.2688	0.0694	-0.1437	-0.0208	0.1193	0.0268	0.054	-0.0032	0.0013
Style - Mid Growth	0.3074	0.0726	-0.1523	-0.0264	0.1313	0.0234	0.0482	-0.0073	0.0018
Style - Small Value	0.3081	0.0662	-0.1559	-0.0274	0.1288	0.0308	0.0557	-0.0059	0.0014
Style - Small Core	0.2688	0.0683	-0.1351	-0.0211	0.1225	0.031	0.0575	-0.003	0.0013
Style - Small Growth	0.3146	0.0616	-0.1482	-0.027	0.1253	0.0234	0.046	-0.0061	0.0015
Factor - Min Vol	0.2671	0.0092	-0.1402	-0.0277	0.0741	-0.0071	0.0132	-0.0027	0.0009
Factor - Momentum	0.3201	0.0323	-0.1647	-0.0342	0.0999	0.0031	0.0217	-0.002	0.0013
Factor - Size	0.3606	0.0283	-0.1823	-0.0396	0.1124	-0.0078	0.0165	-0.0029	0.0015
Developed Markets	0.2948	0.0666	-0.1543	-0.0252	0.1362	0.0171	0.0457	-0.0132	0.0021
Emerging Markets	0.3446	0.0844	-0.1624	-0.0278	0.1407	0.0291	0.0537	-0.01	0.0021
Europe, Australia, Asia, Far East	0.3526	0.0266	-0.1698	-0.0381	0.1151	-0.0094	0.0164	-0.0079	0.0017
Total International Stock ETF	0.3538	0.0248	-0.167	-0.0374	0.1164	-0.0114	0.0137	-0.0074	0.0018
MSCI Pacific	0.3106	0.0171	-0.138	-0.0332	0.0943	-0.0073	0.014	-0.0046	0.0015
Sector - Real Estate	0.2857	0.0497	-0.1237	-0.0222	0.1032	0.0249	0.0391	-0.0064	0.0012

Sensitivity

Sensitivity to Factor, (Rf = 2.00%)

	Gr	Mp	Cr	Ch	Ie	Rr	Rl	Cu	Cm
Benchmark (Wilshire 5k)	0.381	0.1	0.2	0.029	0.164	0.041	0.078	0.004	0.002
iShares:Core S&P 500	0.378	0.099	0.204	0.029	0.164	0.042	0.078	0.004	0.002
Factor - Value	0.444	0.051	0.237	0.052	0.16	0.008	0.043	0.003	0.002
Factor - Dividend	0.383	0.088	0.193	0.035	0.162	0.049	0.081	0.008	0.002
Factor - High Dividend	0.449	0.036	0.246	0.05	0.154	0.006	0.053	0.006	0.002
Factor - Quality	0.49	0.031	0.238	0.053	0.147	0.003	0.032	0.004	0.002
Index - Russell 2k	0.394	0.101	0.189	0.031	0.167	0.039	0.076	0.004	0.002
Index - NASDAQ	0.393	0.114	0.188	0.03	0.149	0.044	0.079	0.002	0.001
Style - Large Value	0.436	0.046	0.233	0.049	0.153	0.017	0.059	0.006	0.002
Style - Large Blend	0.397	0.087	0.205	0.035	0.161	0.038	0.069	0.008	0.002
Style - Large Growth	0.414	0.083	0.205	0.035	0.159	0.032	0.062	0.008	0.002
Style - Mid Value	0.381	0.093	0.203	0.034	0.169	0.038	0.07	0.008	0.002
Style - Mid Core	0.38	0.098	0.203	0.029	0.169	0.038	0.076	0.005	0.002
Style - Mid Growth	0.399	0.094	0.198	0.034	0.17	0.03	0.063	0.009	0.002
Style - Small Value	0.395	0.085	0.2	0.035	0.165	0.039	0.071	0.008	0.002
Style - Small Core	0.379	0.096	0.191	0.03	0.173	0.044	0.081	0.004	0.002
Style - Small Growth	0.417	0.082	0.197	0.036	0.166	0.031	0.061	0.008	0.002
Factor - Min Vol	0.493	0.017	0.259	0.051	0.137	0.013	0.024	0.005	0.002
Factor - Momentum	0.471	0.048	0.242	0.05	0.147	0.005	0.032	0.003	0.002
Factor - Size	0.48	0.038	0.242	0.053	0.149	0.01	0.022	0.004	0.002
Developed Markets	0.39	0.088	0.204	0.033	0.18	0.023	0.061	0.017	0.003
Emerging Markets	0.403	0.099	0.19	0.033	0.165	0.034	0.063	0.012	0.002
Europe, Australia, Asia, Far East	0.478	0.036	0.23	0.052	0.156	0.013	0.022	0.011	0.002
Total International Stock ETF	0.482	0.034	0.228	0.051	0.159	0.016	0.019	0.01	0.002
MSCI Pacific	0.5	0.028	0.222	0.053	0.152	0.012	0.023	0.007	0.002
Sector - Real Estate	0.435	0.076	0.189	0.034	0.157	0.038	0.06	0.01	0.002

Expected Returns Table

Expected Annualized Performance Based on Factors (Rf = 2.00%)

	Return	Std Dev	Sharpe
Factor - Quality	156.79%	0.1189	12.7583
MSCI Pacific	149.18%	0.1459	9.8906
Developed Markets	137.83%	0.1588	8.3826
Europe, Australia, Asia, Far East	109.33%	0.1296	8.1199
Total International Stock ETF	107.21%	0.1336	7.7205
Factor - Size	101.31%	0.1457	6.6792
Factor - Momentum	91.77%	0.1344	6.5462
Index - NASDAQ	78.66%	0.1580	4.7556
Style - Large Growth	59.53%	0.1303	4.3269
Style - Mid Growth	60.33%	0.1490	3.8378
Emerging Markets	81.79%	0.2081	3.7578
Style - Small Growth	58.57%	0.1592	3.4833
Style - Mid Core	53.99%	0.1489	3.4215
Factor - Min Vol	33.99%	0.0973	3.2204
Style - Large Blend	43.99%	0.1347	3.0550
Index - Russell 2k	50.72%	0.1620	2.9471
Index - S&P 500 Index	42.55%	0.1349	2.9461
Benchmark (Wilshire 5k)	40.61%	0.1304	2.9006
Style - Small Core	45.99%	0.1540	2.7982
Style - Small Value	42.09%	0.1612	2.4367
Style - Mid Value	34.68%	0.1456	2.1997
Factor - Value	17.06%	0.0959	1.7301
Style - Large Value	20.89%	0.1205	1.5357
Factor - Dividend	10.73%	0.1569	0.5446
Sector - Real Estate	-5.69%	0.2506	-0.3015
Factor - High Dividend	-44.61%	0.1386	-3.2986

Factor Analysis Best performers

	Return	Std Dev	Sharpe
Factor - Quality	156.79%	0.1189	12.7583
MSCI Pacific	149.18%	0.1459	9.8906
Developed Markets	137.83%	0.1588	8.3826
Europe, Australia, Asia, Far East	109.33%	0.1296	8.1199
Total International Stock ETF	107.21%	0.1336	7.7205

Annualized Metrics (Rf = 2.00%)

Important

Avoid the following equity classes:

	Return	Std Dev	Sharpe
Style - Large Value	0.2089%	0.1205	1.5357
Factor - Value	0.1706%	0.0959	1.7301
Factor - Dividend	0.1073%	0.1569	0.5446
Sector - Real Estate	-0.0569%	0.2506	-0.3015
Factor - High Dividend	-0.4461%	0.1386	-3.2986

Annualized Metrics (Rf = 2.00%)

Relative Stregnth Analysis

Relative strength is a strategy used in momentum investing and identifying value stocks. It focuses on investing in stocks or other investments that have performed well close to the market or relevant benchmark. We use relative strength to confirm our assumptions about our expectations. We should see out performance compared to the benchmark and peers if our assumptions are correct.

Rotation Analysis

A rotation chart can help identify the momentum of a trend. The top-left quadrant is a developing trend, just starting to unfold. The top-right quadrant is a developed trend. A weakening trend is in the bottom-right. And the last quadrant, the bottom-left, is a downtrend.

Relative Strength

Relative Rotation, to the market

Zero iis the performance of Wilshire 5k, Above zero is performance in excess of the market, anything below is underperformance.

Absolute Return

Rotation Chart

Rotation chart of Rate of Change, y and x axis is rotion of rate of change.

Trend Anlaysis

Trend following is a trading style that attempts to capture gains by analyzing an asset’s momentum in a particular direction. When the price moves in one overall direction, such as up or down, that is called a trend.

Trend traders enter into a long position when security is trending upward. An uptrend is characterized by higher swing lows and higher swing highs. Likewise, trend traders may opt to enter a short position when an asset is trending lower. Or, in our case, managing long-only, chose to avoid securities that are trending down. A downtrend is characterized by lower swing lows and lower swing highs.

Having predefined rules on what is and isn’t a trend also provides us with a method for controlling risk. We know at what price we would not consider being invested in a position. Following our trend system, we always know when we should cut our losses.

Trend Table & Rolling Performance

			Rolling Performance
	Trend	Efficiency Ratio	One Month	Three Month	Six Month	One Year	Drawdown
Europe, Australia, Asia, Far East		-0.17	0.31	3.52	20.16	9.09	-0.98
Index - NASDAQ		0.25	3.85	10.48	25.1	13.73	-0.99
Developed Markets		-0.17	-0.04	2.21	17.14	6.5	-1.11
Factor - Quality		0	0.42	2.72	14.13	7.97	-1.13
Total International Stock ETF		-0.13	-0.51	1.65	15.65	5.16	-1.35
MSCI Pacific		0.07	1.48	1.05	15.37	4.62	-1.45
Style - Large Growth		0.22	3.25	8.1	21.89	12.31	-3.8
Index - S&P 500 Index		0	0.3	1.72	10.37	5.96	-3.92
Style - Large Blend		0.01	0.35	1.83	10.41	5.85	-4.23
Style - Large Value		-0.12	-0.81	-1.56	7.05	5.82	-4.92
Factor - Min Vol		-0.17	-1.5	0.26	4.44	3.89	-5.22
Factor - Dividend		-0.25	-2.24	-5.22	-0.49	-0.92	-8.48
Index - Russell 2k		-0.03	-0.75	-3.43	3.74	8.17	-8.99
Factor - Size		-0.15	-1.99	-5.52	3.89	-0.1	-9.03
Factor - Momentum		-0.22	-2.81	-3.63	-4.34	1.62	-9.06
Style - Mid Growth		-0.08	-2.17	-3.42	7.82	5.96	-9.14
Emerging Markets		-0.08	-1.83	-2.56	8.18	-2.9	-9.41
Style - Small Growth		-0.03	-0.84	-3.14	7.27	5.77	-9.52
Style - Mid Core		-0.16	-1.87	-6.8	2.24	2.62	-10.16
Factor - High Dividend		0	-5.54	-6.13	-3.92	-6.83	-10.47
Style - Mid Value		-0.27	-2.79	-8.7	-1.89	-5.2	-11.18
Style - Small Value		-0.17	-2.25	-9.88	-2.52	-3.13	-13.2
Style - Small Core		-0.12	-2.15	-9.49	-2.23	-3.27	-13.34
Factor - Value		-0.27	-4.75	-8.48	-2.97	-8.76	-13.64
Sector - Real Estate		-0.24	-2.36	-10.05	-0.91	-14.51	-20.95

Drawdown is calculated from the 52 week high, less current price. The draw down will not reflect a loss that is longer than one year. Trend is based off our own propritary trend follwing model.

Summary

To build a tactical portfolio, we need to understand and set expectations. We start with our macro and factor models. We then need to confirm our assumptions with a relative strength analysis. Finally, we want the ability to control the downside risk when things do not go as expected. We use a trend analysis that sets the point that we will exit no matter what.

	E(r) Business Clycle	E(r) Factor	Relative Rotation	Absolute Rotation	Trend	Efficiency	Drawdown
Europe, Australia, Asia, Far East							-0.98
Index - NASDAQ							-0.99
Developed Markets							-1.11
Factor - Quality							-1.13
Total International Stock ETF							-1.35
MSCI Pacific							-1.45
Style - Large Growth							-3.8
Index - S&P 500 Index							-3.92
Style - Large Blend							-4.23
Style - Large Value							-4.92
Factor - Min Vol							-5.22
Factor - Dividend							-8.48
Index - Russell 2k							-8.99
Factor - Size							-9.03
Factor - Momentum							-9.06
Style - Mid Growth							-9.14
Emerging Markets							-9.41
Style - Small Growth							-9.52
Style - Mid Core							-10.16
Factor - High Dividend							-10.47
Style - Mid Value							-11.18
Style - Small Value							-13.2
Style - Small Core							-13.34
Factor - Value							-13.64
Sector - Real Estate							-20.95